If you’ve looked closely at an insurance restoration estimate — either your contractor’s or your insurance company’s — you may have seen a line item at the bottom for “Overhead and Profit,” sometimes written as O&P. It’s one of the most frequently debated and most frequently omitted items in the insurance restoration industry. Here’s what it actually means and why it matters.
What Is Overhead and Profit?
Overhead and Profit is a standard markup applied to the cost of a construction project to account for a general contractor’s indirect business costs and reasonable profit margin. In the insurance restoration industry, the standard O&P rate is 10% overhead and 10% profit — applied to the total direct cost of the project. This is the “10/10” you’ll sometimes hear contractors refer to.
Overhead covers the real costs of running a construction business that aren’t captured in individual line items: office space, vehicles, insurance, licensing, administrative staff, estimating software, phones, accounting, and the dozens of other costs that exist before a single nail is driven. Profit is what allows a business to remain viable, invest in equipment, carry a workforce, and take on the financial risk of a construction project.
Why Do Carriers Routinely Omit It?
Insurance carriers frequently issue estimates without O&P — or with a reduced O&P — particularly on claims that involve only one or two trades. The industry standard (supported by Xactimate guidance and case law in multiple states) is that O&P applies when a general contractor is needed to coordinate and manage a multi-trade project.
The definition of “multi-trade” can be contested. Carriers sometimes argue that a roofing-only job doesn’t require a GC and therefore doesn’t warrant O&P. But on most restoration projects — particularly fire, water, or storm claims that involve multiple systems — a general contractor is clearly necessary, and O&P is clearly owed.
How Much Does It Actually Represent?
On a $40,000 restoration project, 10/10 O&P represents $8,800 in additional compensation (calculated on the base cost before markup). On a $100,000 project, that’s $22,000. This is not a trivial number — and it’s often the difference between a project that’s financially viable for your contractor and one that isn’t.
A contractor who is forced to absorb the O&P gap either cuts corners elsewhere or takes a loss on the job. Neither outcome is good for the homeowner.
Is O&P Legitimate?
Yes. It is standard, documented in industry guidance, upheld in court in multiple jurisdictions, and appropriate on any project where a licensed general contractor is managing the work. Any carrier that disputes it on a complex restoration project is either applying policy incorrectly or testing to see if you’ll push back.
The answer is always to push back — with documentation, with industry citations, and with a contractor who knows how to make the argument.
What Should You Do If O&P Is Missing?
If your contractor reviews the carrier’s estimate and finds O&P missing or reduced, they should include it in their supplement with a clear explanation of why it applies. This is a standard supplement item and one that experienced restoration contractors win regularly.
You should not agree to a scope of work that doesn’t include O&P on a project that warrants it — because that shortfall will either come out of the quality of the work or out of your pocket.
Phase III Construction includes O&P on every appropriate project and fights for it when carriers push back. It’s part of getting your claim paid correctly — not a bonus. Call us at (734) 237-7322 and we’ll review your existing estimate for free to make sure nothing is being left on the table.